In premarket trading on Friday, shares of Salesforce (NYSE:CRM) were down slightly. This was because investment firm Citi gave a negative catalyst watch and said that it had noticed signals of “slowing demand” leading up to its earnings release for the fourth quarter.
According to analyst Tyler Radke, who has a neutral recommendation on Salesforce stock, there is an overall “fatigue” for front office or customer relationship management software that might restrict the upside for the period and the company’s first projection for fiscal 2024. This is based on partner checks indicating additional deceleration from the third quarter.
In a letter to customers, Radke said, “Conversations with CRM partners imply the negative demand situation hasn’t let up with calendar 2023 growth outlooks degrading to 8-10% (vs. 15% in our pre-F’3Q23 checks).” The analyst continued by saying that the price comments were “mixed” despite some positives, such as “more resilient top-of-funnel trends” and solid demand from the public sector.
As a result, Radke feels that shares might be “ready for a near-term downturn as margin upside may be priced in and growth metrics could disappoint.” This is because shares have increased by around 27% year-to-date due to cost-cutting and activist engagement.
Despite the prospect of lower margins, Radke increased his price objective for a Salesforce stock to $182 from $164. He based this increase on the company’s strong revenue growth. In addition, he decreased his revenue growth predictions for the fiscal year 2024 to reflect the reduced performance responsibilities for the present income stream.
On March 1, Salesforce will release the company’s financial results for the fiscal fourth quarter.
Wells Fargo, a major investment bank, has predicted that the Salesforce stock might benefit from rising margins and activist investors’ participation.
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